Islamabad, July 4, 2023: The Federal Board of Revenue (FBR) has recently implemented a 15 percent sales tax on various services offered by hotels, clubs, and other establishments in Islamabad. This decision aims to enhance revenue collection and streamline taxation procedures within the hospitality sector.
In a notification issued on Tuesday, the FBR specified that the new tax rate of 15 percent will be applicable to services provided or rendered by hotels, motels, guest houses, farmhouses, marriage halls, lawns, clubs, and caterers. However, it is important to note that a reduced tax rate has been introduced for these services if the payment is made through digital means.
The FBR further explained that if the payment for services is made via debit or credit cards, mobile wallets, or QR scanning, the tax rate shall be reduced to five percent. This reduced rate will be applicable to services provided or rendered by restaurants, including cafes, food parlors (including ice-cream), coffee houses, coffee shops, deras, food huts, eateries, resorts, and similar establishments offering cooked, prepared, or ready-to-eat food services. However, it is crucial to understand that no input tax adjustment or refund shall be admissible under this reduced tax rate.
On the other hand, for the above-mentioned services where payment is received in cash, the sales tax rate shall remain at 15 percent. This means that cash transactions for services provided by the hospitality sector will incur the higher tax rate as enforced by the FBR.
The introduction of these tax measures by the FBR is expected to boost revenue collection efforts in Islamabad’s hospitality industry. By promoting digital payments, the government aims to encourage transparency and discourage cash-based transactions, ultimately facilitating greater financial accountability.
This move is also aligned with the global trend of shifting towards digital transactions and reducing reliance on cash. Moreover, the enforcement of these tax rates aims to create a level playing field for all businesses in the hospitality sector while ensuring fair tax contributions.
It is essential for hotels, clubs, restaurants, and other relevant businesses to familiarize themselves with the new tax rates and comply with the FBR’s regulations to avoid any penalties or legal consequences. The FBR will closely monitor compliance and take necessary action against non-compliant entities.
The FBR’s decision to enforce a 15 percent sales tax on services provided by hotels in Islamabad, along with the reduced rate for digital payments, marks a significant step towards strengthening taxation practices in the hospitality sector. It is expected that these measures will contribute to the overall economic development of the region and enhance the revenue collection efforts of the government.
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